Often I talk with people who want to deal with their outstanding tax debt but don’t want to file for bankruptcy. Whether this is because they are self employed and want to continue to do work on their own, not have as sever of an impact on their credit as they would experience with a bankruptcy or whether they simply want to avoid the stigma of a bankruptcy, it really doesn’t matter. Ultimately, there are two major ways you can deal with outstanding taxes without filing for bankruptcy. The first is to simply make arrangements directly with Canada Revenue Agency (CRA) to make payments over time. The second is to file a formal proposal under the Bankruptcy and Insolvency Act (BIA).
Arrange for payment directly
The first thing you should do when you have outstanding taxes and insufficient money to pay your balance immediately is to contact CRA and see if they will accept payments over time. Typically, if you explain your financial situation to CRA, unless you have had a long period of delinquency, they are often willing to accept a payment plan. For example, if you owe $10,000, they will often allow you to make 24 monthly instalments until your balance is paid in full. Although, keep in mind CRA will continue to chare you both interest and penalties until your outstanding balance is paid in full so the quicker you are able to pay the debt the less costly it will be.
The key thing when you make arrangements directly with CRA is that you have to keep up your end of the agreement and if you fail to do so CRA will act quickly to protect their interests. The reason this is important is that CRA has many powers that they can enact to entice compliance. Whether they take further action against you to collect receivables, seize moneys from bank accounts, garnish wages or or place a lien on any real property, these measures can be enacted immediately (as they don’t need court permission) and may leave you in a worse position than you are now.
File a Formal Proposal
Another way to deal with outstanding taxes is to file a proposal under the Bankruptcy and Insolvency Act. A proposal is a legislated way to protect yourself from your creditors and the only way that CRA will consider accepting less than the full amount owing. This legislation allows for you to make an offer to all your unsecured creditors to amend your existing payment schedule, change the terms of your existing agreement or even to pay them a percentage of what you owe. By filing a proposal you can achieve a fresh start without going bankrupt and in a manner you can afford. To file a proposal you must first contact a liscensed trustee, provide the trustee with a complete list of all of your assets and debts. Based on this information the trusee will be able to help you create a proposal that will be most likely to succeed. But remember, due to the unique nature of finances, some of the terms required in your proposal will depend on your unique situation.
Although, there are some specific terms that are required withing a proposal when dealing with monies owing to CRA (i.e. taxes). For CRA to even consider a proposal you must include the following terms:
o Your tax returns must all be filed and up to date prior to acceptance of the proposal.
o During the proposal you must file all required tax returns on time and pay any outstanding balances as they become due. Failure to do so will be seen as default in performance of your proposal and the full amount of your tax debt will be reinstated.
As well it is important that you are aware that if your taxes are reassessed in any period prior to the date of the proposal, that refund must first be applied to your outstanding debt to CRA, regardless of what stage the in the proposal processes you are in.
If you require any additional information regarding options available to those with outstanding tax debt there is a great deal of useful information you can find at www.bankruptcy-edmonton.com or www.bankruptcy-alberta.com or simply contact me directly via email.
Barton K. Goth is a senior advisor with Goth & Company Inc. – Trustee in Bankruptcy and publiser of the Edmonton Bankruptcy Article Series. Goth & Company Inc. is an Edmonton based firm licensed by the Federal Government and committed to helping people find solutions to financial difficulties. If you require more informaiton bankruptcy or the various alternatives you can visit Goth & Company Inc. at their www.bankruptcy-edmonton.com/, post a question on their Edmonton Blog, or you can contact Goth & Company Inc directly.
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